Wednesday, 17 June 2015

Economic
decision-making in the European Union suffers at the highest corporate echelons
from a lack of diversity, particularly in the area of gender diversity: over
half of the graduates from European universities today are female, yet men
outnumber women in corporate boards by a ratio of nearly four to one. What is
more, differences between Member States are vast: female representation among
directors ranges from less than five percent in some countries to more than
thirty percent in others. The latest statistics can be found at the site of the
European
Commission’s database on women and men in decision-making.

Acknowledging this
reality and within the framework of the Women’s Charter and the Strategy for
Equality between Women and Men 2010-2015, the European Commission launched in
November 2012 its Proposal for a Directive of
the European Parliament and of the Council on improving the gender balance
among non-executive directors of companies listed on stock exchanges and
related measures.

The Economic and Social
Committee and the Committee of the Regions having both issued opinions, the
proposal was adopted by the European Parliament at first reading in November
2013. In December 2014, however, the Council (Employment, Social Policy, Health
and Consumer Affairs configuration) rejectedthe proposal because of a failure to reach an agreement, inviting the
preparatory bodies ‘to continue their work on the file.’ The latest development
came in the form of a progress reportissued on 11 June 2015, concluding that

[t]here is a broad consensus among the Member
States in favour of taking measures to improve the gender balance on company
boards. While a large number of Member States support EU- wide legislation,
others continue to prefer national measures (or non-binding measures at the EU
level). Thus further work and political reflection will be required before a
compromise can be reached.

Main contents of the proposal

The Proposal for a
Directive (as
considered by the Council), which ‘seeks to achieve a more balanced
representation of men and women among the directors of listed companies by
establishing measures aimed at accelerated progress,’ only targets publicly
listed companies having their registered office in a Member State and excludes
SMEs from its scope of application. It is expected that a trickle-down effect
will ensue, thereby leading companies not affected by these measures towards
more balanced corporate boards.

Targeted companies should
attain by the predetermined deadline (31 December 2020) either (a) 40 percent
of members of the under-represented sex among non-executive directors or (b) 33
percent of members of the under-represented sex among all directors, both
executive and non-executive. The choice of option is in principle open to the
implementing Member State, which may also exempt those companies where women
represent less than ten percent of the employees from compliance with the
numerical aims. An additional obligation is envisaged for targeted companies to
set individual quantitative gender balance objectives when the overall
thresholds do not directly apply.

A reporting duty to the
national equality bodies has been introduced, following the ‘comply-or-explain’
principle. A document must be compiled detailing the ‘gender representation on
[companies’] boards, distinguishing between non-executive and executive
directors’ as well as ‘the measures taken with a view to attaining the
applicable objectives.’ The same information shall be published in an
appropriate and accessible manner on the companies’ websites.

The core of the
proposal lies on the series of procedural requirements imposed on companies
which fall short of the planned numerical objectives. These companies must,
when selecting candidates for director positions, undertake a comparative
analysis of the qualifications of each candidate by applying clear, neutrally
formulated and unambiguous criteria established in advance. They shall,
following this analysis, give priority to the candidate of the
under-represented sex, unless an objective assessment of all criteria specific
to the individuals tilts the balance in favour of the other candidate(s). The
wording of these requirements is directly drawn from the case-law of the CJEU regarding
gender quotas (see, inter alia,
Judgments in Kalanke, in Marschall v Land Nordrhein Westfalen and
in Abrahamsson and Anderson v Fogelqvist.)

Upon request from any
candidate, all parameters considered when deciding over selection (the
qualification criteria, the objective comparative assessment and, where
relevant, the considerations tilting the balance) need be disclosed to her or
him in a transparent manner. Moreover, if the candidate of the
under-represented sex establishes a prima
facie instance of discrimination, the burden will shift onto the respondent
company to disprove those allegations—as occurs with other discrimination
claims under EU law.

Sanctions are to be
imposed by the Member States alone for
the infringement of the procedural requirements, the reporting obligations or
the mandate to set individual quantitative objectives. In other words,
non-compliance with the numerical quota objectives by the end of the
established deadline is notper se penalised beyond requiring
companies to state ‘the reasons for not attaining the objectives and a
description of the measures which the company has already taken and/or intends
to take in order to meet them.’

The Union’s
intervention in the field has an essentially temporary character; the ultimate
objective of the proposal being to foster gender diversity within corporate
boards to the extent that conditions in society are such as to not guarantee
that balance on their own. This interim approach is reflected by the sunset clause
contained in the proposal: the directive shall expire in December 2029. As a
last point, it is notable that the directive would only effect minimum
harmonisation, thus allowing Member States to go beyond these measures
‘provided those provisions do not create unjustified discrimination or hinder
the proper functioning of the internal market.’

The flexibility clause: a point de discorde

Article 4b of the
revised proposal features the most controversial provision and the reason why progress
is only very slowly being made: namely, the so-called equivalent efficacy or flexibility
clause. Following this clause, Member States which have enacted measures to
ensure a more balanced representation of men and women on corporate boards would
be authorised to suspend application of the procedural requirements, given that
those measures are equally effective or have attained progress coming close to
the aims set out in the directive.

‘With a view to
combining flexibility with maximum legal certainty,’ Article 4b exemplifies
three scenarios deemed by law to guarantee equal effectiveness, leaving the
door open at the same time to analogous situations existing in the Member
States. In this respect, the last version of the proposal allows disconnection as
soon as ‘members of the under-represented sex hold at least 25% of the total
number of all non-executive director positions or 20% of the total number of
all director positions and the level of representation has increased by at
least 7.5 percentage points over a recent five-year period.’ Beyond 2020, more
stringent conditions will have to be complied with if the Member State wishes
to maintain the suspension.

Considering the documents
issued by the Working Parties of the Council, the flexibility clause has created
a major point of contention between delegations. While agreement broadly exists
on the main lines of the proposal, Member States are divided between those
pushing for the flexibility clause to be enhanced and those warning against any
further softening of the text. The recent progress report consequently
acknowledges that ‘[s]ome further fine-tuning of the flexibility clause is
likely to be required before an agreement can be reached on the Directive.’

Comments

The proposal should be
welcomed as a significant step towards tackling gender imbalance within
corporate governance in the European Union. Substantive measures in this
respect have been long overdue and much awaited; the question thus remaining is
if and when consensus within the Council will be reached. The Luxembourg
Presidency in its outlook
overview of priority dossiersrefers to the proposal on gender balance, recognising that it ‘[has]
been blocked in the Council for a considerable time.’

From the standpoint of
Discrimination law, it is regrettable that the rationale of the directive
appears to be predominantly economically driven, at the expense of
considerations of parity, diversity, legitimacy and democracy. Instead of
upholding the claim that gender balance in corporate boards will yield microeconomic
growth—an assertion which, on the other hand, risks perpetuating gender
stereotypes, as it is based on the assumption that women and men act differently
in business contexts—, the proposal should rather build upon dependency with a
view to eradicating and correcting structural male dominance in
decision-making.

De lege ferenda, it
would perhaps be advisable to abandon the understanding of quotas purely on the
basis of sex and transitioning to a gender terminology that accommodates at
the same time additional genders or gender identities. Following this
suggestion, measures could be envisaged that give a soft preference in a
similar manner not only to female candidates but to candidates of genders or
gender identities which differ from that of over-represented male candidates.

As regards the
sanctioning regime, more meaningful enforcement measures could be conceived of within
the limits of proportionality that do not leave failure to comply with the
numerical targets unpunished, e.g. in the form of fiscal incentives or of
penalties within the area of public procurement.

One of the striking
points of the proposal is undoubtedly that of the flexibility clause. Despite
its stated purpose of allowing more proactive Member States to develop their
own equality programmes without conflicting with the substance of the proposal;
this possibility permits, in practice, a large derogation by means of national
tailor-made gender diversity strategies. Whereas due regard must be had to subsidiarity,
it should be noted that the envisaged thresholds for equivalent efficacy are deceptively
low as a consequence of the watering down of the proposal during the Council
deliberations.

To conclude on a
pragmatic note, it can be said that the current prospects of more robust
European Union legislation tackling gender imbalance within corporate
governance are bleak: the still ongoing difficulties within the Council to
reach an agreement foreshadow, if anything, an even more compromised version of
the text. For the time being, in the European Union it is more around twenty
percent Venus, eighty percent Mars. Surely an imbalance of planetary
dimensions.